NCPA - National Center for Policy Analysis


October 2, 2006

Because of the economics of the cancer drug market, price does not seem to hurt a drug's popularity.  With patients often facing grim prognoses and desperate for new therapies, and insurers relatively powerless to negotiate prices or deny coverage, the cost of treatments seems to have little impact on demand, says the New York Times.

The rise in cancer-drug prices is a microcosm of broader trends pushing up health care costs nationally:

  • Despite decades of efforts by governments and insurers to restrain costs, patients continue to want the newest -- and most expensive -- drugs and medical devices.
  • And doctors and the health care industry have little reason to keep costs in check, because insurers rarely deny coverage for new treatments on the basis of price.

As a result, health care costs continue to skyrocket:

  • On Tuesday, the Kaiser Family Foundation reported that the cost of employee health insurance coverage rose 8 percent, according to a survey conducted from January to May this year.
  • Businesses now spend about $8,500 a year for health insurance for the average family, the foundation said, with employees adding $3,000, not counting the cost of deductibles and other out-of-pocket payments.

Drug industry experts say prices reflect the fact that makers of cancer drugs can charge high prices for new medicines even if they are only marginally better than their older counterparts.  That pricing dynamic is enabled by insurance, which shields patients from the full price of drugs.  Without pressure from their insurers, patients have little reason to choose older treatments over expensive new therapies.

Doctors, who ultimately decide what drugs to prescribe, also do not have to worry about paying for the treatments they choose.

Source: Alex Berenson, "Hope, at $4,200 a Dose," New York Times, October 2, 2006.

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